SG REITs-Defensive Shield

We are expecting positive distribution per unit (DPU) growth in 2019, and this view is also shared by the street. From a balance sheet perspective, the Singapore REITs under our coverage have remained prudent on their capital management. In terms of sub-sector preference, we rank retail REITs as our most preferred, followed by industrial REITs, hospitality REITs and office REITs. Valuations for the S-REITs have become more reasonable as well. We favour quality and defensive yield plays that can provide investors an avenue to weather the uncertainties ahead. Our preferred picks are Mapletree North Asia Commercial Trust, Keppel DC REIT, Frasers Centrepoint Trust and Frasers Logistics & Industrial Trust.

Positive DPU growth expected in 2019

Looking ahead, we are expecting positive DPU growth in 2019. For our coverage universe, we are projecting stable DPU growth (market-cap weighted) of 0.3% for the current financial year (FY18/19F) and 2.4% for the next financial year (FY19/20F). This view is shared by the street, with Bloomberg consensus estimates pointing to DPU growth of 0.6%, 2.7% and 2.4% for FY18/19F, FY19/20F and FY20/21F, respectively. As the majority of S-REITs have their financial year end in Dec (i.e. one quarter left to report for FY-1 (FY18/19F)), we believe it is more meaningful to look at the FY19/20F figures.

Sector preference: Retail > Industrial > Hospitality > Office

From a balance sheet perspective, the SG REITs under our coverage have remained prudent on their capital management. The average gearing ratio stood at 35.1%, as at 30 Sep 2018, with 76.1% of their borrowings hedged/fixed. In terms of sub-sector preference, we rank retail REITs as our most preferred, followed by industrial REITs, hospitality REITs and office REITs. While we are cognisant that near-term supply pressures would be highest for retail, we expect the retail REITs under our coverage to remain resilient. Furthermore, naysayers previously alluding to the doom and gloom of brick-and-mortar retail in Singapore have largely toned down their pessimism.